For Thursday, September 6, 2012, We Recommend Against Investing

September 5, 2012

We recommend selling your equity positions or hedging for a risk-neutral position.

Technical Comment:

The S&P 500 declined 0.1% on Wednesday with volume above Tuesday and higher than the 30-day moving average. If the S&P 500 advances about 2 points on Thursday our automated forecast could return to a growth trend.

Subjective Comment:

Wednesday downward movement of the S&P 500 index was minor, but it marked a second straight strong-volume down-day. Our pattern recognition software has still not detected a predictive pattern, but two such days in a row is not a positive sign. We expect US markets to continue their sideways or downward movement.

News from Europe indicates the European Central Bank is close to unlimited sovereign bond purchases for debt with maturities in the 3-year range. However, and this is a very big detail, the bond purchases will be sterilized. This means the ECB will not be printing new Euros, which is good, but the large sterilized purchases means existing Euros will be redirected from private use to the insolvent public sector. This will misallocate available capital and starve private businesses and entrepreneurs, resulting in an on-going depression of the Eurozone economies and stagnation of their stock markets. The news might create a short-term lift for markets, but after that there is no reason to expect a lift in markets. Any spillover to US markets will also be temporary. Our technical analysis and our subjective interpretation of the US M2 money supply both suggest US stock markets will not grow from here.

Continue to avoid US markets and all bonds. Continue to hold and accumulate cash as a wealth preservation strategy for your investments. If you choose to add to your price inflation hedges, do your research carefully.

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